Risky Maneuver in Virginia’s House
Lawmakers play games to preserve federal stimulus aid.
Gov. Bob McDonnell and House budget leaders may think they’re pretty cunning, but their latest budget gimmick could cost Virginia $126 million if federal officials catch on.
Buried deep in the House spending proposal is an attempt to exploit a loophole in federal rules governing stimulus funding. The idea was concocted by McDonnell’s financiers and endorsed by the House of Delegates last week.
In order to qualify for federal dollars, Virginia and other states must show that they are providing financial support for public schools at the same level as in 2006. The House budget appears to meet that requirement on paper, but it violates the intent of the rule.
The gimmick works like this: The state would pay local school systems $250 million for its share of teacher retirement benefits. That amount would be reported to the federal government. But local governments would be ordered to send $182 million back to the state. That refund wouldn’t be reported.
House leaders argue that their tactic hurts no one. Further, they say their plan to reduce retirement benefits for new public employees will reduce fixed costs for education, and that should be reflected in any so-called “maintenance of effort” calculations.
But there’s a danger that federal officials will see this accounting maneuver for what it is and yank Virginia’s share of stimulus aid. Virginia has collected most of the $983 million already. If federal authorities conclude the state has violated the rules, they could withhold the final payment of $126 million. It’s less likely, but possible, that the state could even be ordered to return part of the stimulus money it has already collected.
If the House strategy sounds vaguely familiar, it is. Former Gov. Jim Gilmore attempted in 2001 to collect $260 million in federal Medicaid funds by artificially inflating the state’s share.
Gilmore asked several local governments to borrow money on behalf of public nursing homes and transfer the dollars to the state, which immediately returned the funds and used that “expenditure” to collect matching federal aid. Gilmore backed off after congressional auditors criticized the plan.
Lawmakers should have learned their lesson then: Getting cutesy with federal money is too risky. The fact that House Republicans are willing to take that risk again shows the desperate measures necessary to eliminate a $4 billion budget gap without any taxes or even fees.
In their budget proposal, state senators wisely avoided this shell game with a simple solution: They made fewer cuts to public school funding. Budget negotiators should follow the Senate’s lead and restore state dollars to education so that Virginia can qualify for federal aid without relying on gimmicks. With millions of stimulus dollars at stake, this is a risk Virginia’s schoolchildren cannot afford.
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